Financial fraud threatens Satyam survival

Jan 8, 2009

India's Satyam Computer Services – a global outsourcing company with strong ties to the South African market – is embroiled in a massive financial fraud scandal that is being likened to the Enron crisis.

The accounting scandal has led to the resignation of founder Ramalinga Raju and could threaten both the company and the reputation of the country's whole outsourcing sector.In a letter to the board, Raju explains how the error grew from a small discrepancy years ago."What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years," he writes. "It hasattained unmanageable proportions as the size of company operations grew."It was like riding a tiger, not knowing how to get off without being eaten."Satyam is one of the biggest IT outsourcing companies in India and its clients include almost one-third of the Fortune 100 companies. It employs 53 000 people in 66 countries around the world.However, the company is just about bankrupt, with the 53,6-billion rupees it says it has in cash and bank balances actually sitting at 3,2-billion rupees – and revenues for the latest quarter were actually 20% lower then reported, with profits being just 10% of what it stated they were.The company is now battling to meet payroll and operating expenses and faces closure.Raju claims that he and his family didn't benefit from the missing money.IT outsourcing is one of the cornerstones of India's economy, accounting to $64-billion in revenues and employing 2-million people.Satyam has a strong presence in South Africa, with its latest move being an exclusive strategic partnership with Faritec, in which the companies planned to join forces in the local telecommunications market.In July, Satyam announced a strategic initiative to strengthen its presence in South Africa, setting an aggressive target of 75% year-on-year revenue growth and investing heavily in the development of skilled resources. The company employs more than 120 technical staff at customer locations and has offices in Johannesburg and Cape Town.